BIM72130 - Partnerships: Limited Liability Partnership (LLP): partners interest relief

LLP carries on a trade or profession

Where a LLP carries on a trade or profession the members of the LLP, who are individuals, are entitled to claim interest relief on the loans they obtain in order to defray money applied in the circumstances set out in ITA07/S398 provided that they otherwise meet the conditions of the relief. But if the LLP carries on a trade the amount of relief for interest paid on or before 1 December 2004 may need to be restricted - see BIM72135.

Where a partnership governed by the Partnership Act 1890 - a general partnership - initially converts to an LLP, it continues to be taxed as a partnership following the conversion. There is no event causing statutory relief to be withdrawn, and existing relief under ITA07/S398 continues undisturbed provided the partner/member continues to meet the qualifying conditions.

For other changes ESCA43 might apply. It preserves existing interest relief under ITA07/S398 where, following certain kinds of partnership reconstruction, it would be withdrawn under strict law. Because an LLP is taxed as a partnership, all references in ESCA43 to a ‘partnership’ can be read as including reference to an LLP (other than an investment LLP). This means that a member's relief would not be discontinued where, say, the LLP underwent a merger as envisaged in paragraph 2(c ) of the concession.

LLP carries on an investment business

If the LLP carries on an ‘investment business’, that is a business which consists wholly or mainly in the making of investments and the principal part of whose income is derived there- from, the member will not be entitled to interest relief under ITA07/S398 For this purpose a LLP is treated as carrying on an investment business for each period of account. As when considering ICTA88/S130 you need to look at a representative period to form a view of whether the principal part of income is derived from the business so that a LLP is an investment LLP but that view then applies for the complete period of account.